Rent Seeking: Pennsylvania's Prevailing Wage Musical
"Rent" isn't just a depressing musical about New Yorkers facing AIDS. It's also a term economists use to describe the benefits special interests win for themselves in the political arena, such as regulation that limits competition.
Pennsylvania's 1961 prevailing wage law is a rent. The outdated law mandates that the "prevailing wage" in a community be paid to construction workers on publicly funded projects costing greater than $25,000 (when the law was passed, the average home cost about half that figure).
There's a huge problem with the prevailing wage law: The "prevailing wage" is not the market rate for a carpenter, plumber or electrician—it's the artificially inflated wage that labor unions get in their collective bargaining agreements. On average, the prevailing wage is 51 percent higher than regular wages Pennsylvania construction workers receive for building quality homes, hospitals and offices. That's the rent— the extra taxpayers are forced to pay labor unions for no extra benefit.
In 2010, Pennsylvania taxpayers spent $12.7 billion on construction that was subject to the prevailing wage law. Using county wage data, typical labor costs on construction projects, and the experience of other states that suspended or eliminated their wage mandates, that translates to about 10 to 20 percent in extra costs. Overall, that's an additional $1.3 billion to $2.5 billion that taxpayers pay. That's a needless $400 to $800 more in taxes for the average family of four— money they could use for childcare, groceries, increasingly expensive gas and other essentials.
Two weeks ago, Pennsylvania's lawmakers had a chance to enact a first-step, basic reform to the prevailing wage law: By increasing the "threshold" for prevailing wage projects from the 1960s-era $25,000 to $185,000, which is what the figure would be after adjusting for inflation. But the reform didn't even make it to a vote, and the earliest it will be considered is March 12, when the House returns to session. Labor unions lobby hard to keep their rent. For Pennsylvania's stretched taxpayers, however, prevailing wage is a tired, tuneless score.
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